A forecast used by Rio Tinto and BHP about China’s prospective peak to steel production has been criticised by a former executive.
BHP China veteran of 21 years Clinton Dines said the projection of 1 billion tonnes of steel produced in 2025 in China was too convenient, and attracted growing doubts, AFR reported.
“Anyone with any nous would query it as a very nice round number,” Dines said.
“How could you ever forecast that?”
The projection led to US$120 billion worth of capital investment in Pilbara iron ore mines throughout the boom.
The forecast faces increasing criticism as Chinese demand for iron ore falls in the face of reduced construction.
A recent report from BNP Paribas on the state of the steel industry in China said that the Hebei Province, responsible for 25 per cent of China’s steel production, had official targets to reduce steel production by 40 per cent by 2017.
However, the region was only able to manage a five per cent reduction in 2014.
The international bankers said there were a number of factors that would result in downward structural pressure on steel production, including real estate correction, pollution, and record level steel inventories.
China is responsible for 50 per cent of the world’s steel production, and exports have jumped 60 per cent in the last year.
The World Steel Association (WSA) has also questioned the 1 billion tonnes per annum in 2025 projection, stating that China’s steel consumption had already peaked and would remain “long and flat”, according to director general Edwin Barson.
WSA assumptions suggested Chinese steel production would remain at the 800 million tonnes mark until the middle of next decade, before beginning a declining trend.
AFR said there was internal scepticism about the BHP and Rio forecast, which was referred to as “external propaganda which became internal policy”.